Farm income projections in Nebraska and across the U.S. are a mixed bag as 2019 nears a close. There has been some rebound in overall income levels, but continued concerns over production and market prospects have been buffered only by a large increase in government payments.
In August, USDA's Economic Research Service issued updated U.S. and state-level farm income estimates for 2018 and national projections for 2019. USDA pegged U.S. net farm income prospects for 2019 at $88 billion, the third year of growth since setting a low of $62 billion in 2016.
The 2019 estimate remains far below the record income of $136 billion in 2013, but it has returned to levels above the long-run average in real terms.
These stronger projections are tempered by the reality that growth in net farm income is more than fully accounted for by growth in government payments. Net farm income grew $4 billion in 2019 compared with 2018, while government payments grew by $5.8 billion primarily because of multiple rounds of trade assistance payments for producers made in 2019.
National accounts of the effect of the government safety net have noted that government payments plus crop insurance indemnities will total about $33.1 billion for 2019, or nearly 38% of the estimated $88 billion in net farm income. However, this statistic is misleading as it includes conservation payments in the calculation, which do not serve as a "safety net," and does not include farmer-paid crop insurance premiums against the amount of indemnities.
An adjusted calculation projects the government safety net (excluding conservation payments and accounting for crop insurance indemnities net of premiums) at $25.6 billion, or 29% of net farm income. The number still is large and could grow if a second installment of 2019 trade assistance is distributed before the end of the year, or if crop insurance indemnities grow larger than expected, but it is so far not to the level suggested by aggregate statistics.
The 2019 projections are due to be updated again in late November, but the numbers still will be surrounded by uncertainty. Together with early 2020 projections to be made in February, the outlook will be a function of production concerns in 2019 that could carry over to 2020, coupled with market uncertainty about trade prospects and potential trade assistance.
Improvement in ongoing discussions with China, details of an agreement with Japan, and ratification of the United States-Mexico-Canada Agreement all could improve trade prospects for agriculture and improve the farm income outlook in 2020.
Homing in on Nebraska numbers provides some further detail and insight on the road ahead for Nebraska agriculture. The USDA estimates published in August included final estimates of 2018 farm income levels in Nebraska. Net farm income for the state was estimated at $2.6 billion in 2018, up from the recent low $2.2 billion in 2017, but still off by about two-thirds from the record farm income levels in 2011 and 2013.
While national farm income numbers have recovered a bit since 2016, Nebraska has taken longer to bottom out and hopefully rebound. Nebraska's greater concentration in commodity production and ag export commodities has made it more susceptible to the continued supply-and-demand challenges in the market, as well as the retaliation on U.S. ag exports in the midst of the trade conflict with China and other countries.
Looking through the end of the year, Nebraska's farm income could rebound further to nearly $3.3 billion for 2019 based on some national year-to-year comparisons extrapolated to Nebraska. As with the national results, a sizable portion of net farm income in the state is coming from the federal safety net.
Current projections for government payments stand at about $850 million for 2019. ARC and PLC payments were down substantially from previous years but were essentially replaced in the total by trade assistance payments in excess of $600 million — including part of the 2018 assistance paid in 2019, as well as the first installment of 2019 assistance.
Adding up the safety net impact, government payments plus crop insurance net indemnities minus conservation payments could amount to about $750 million in Nebraska for 2019, or about 23% of net farm income.
That number could grow if additional trade assistance is distributed before the end of the year, or if crop insurance indemnities grow beyond current expectations. But, even at current levels, the number is both a reminder of the importance of the federal farm income safety net to Nebraska agriculture and also a signal of the importance of the integrated agricultural production system in the state with livestock production complementing crops in terms of total ag value added.
Looking beyond 2019, farm income projections in Nebraska could be relatively flat absent recovery and growth in trade opportunities. The potential gains from increased trade with China and Japan, as well as Canada and Mexico, could add to the farm sector in the coming years if current discussions and efforts prove fruitful.
There also is great uncertainty about the biofuels sector and demand for agricultural commodities, predominantly corn, but even a resolution of the current policy debate would seem to help secure current demand more than it drives substantial growth down the road.
There also is a sizable impact yet to be calculated for the growing poultry production sector in Nebraska with the Costco project and other projects phasing in. That should add some additional income (and expenses) above projections in 2019 and even more in 2020, but it may be difficult to determine the farm-sector component of that growing economic activity.
While the total production system represents new ag value generated in the state, the fully integrated system from farm to retail means there also is no specific volume or price determined or reported at the end of the agricultural production phase. Estimates will help assess that impact in years to come, but it will be difficult to determine during the current growth phase.
Summing up the statistics, net farm income seems to be on a modest rebound from recent lows, even as it remains substantially below the record levels of earlier this decade. Yet, it is likely the sharp drop from those record levels as much or more than the overall farm income levels at present that have challenged producers the most financially.
Producers will need to continue managing for the current situation going forward, given limited growth expectations while awaiting a major shift in trade discussions and export opportunities. Efforts to grow more demand domestically with integrated production systems and value-added enterprises can help, but also will require keen management skills and attention to be successful.
Lubben is an Extension policy specialist at the University of Nebraska-Lincoln.